Can We Get Some Property Tax Relief?

OPINION — Yes, property taxes are killing us! Depending on where we live, our local tax bills could have city, county, and school district taxes listed. The easiest target for taxpayers to vent about is definitely on school property taxes. Statewide, they are the highest tax on the bill.

Untutored leaders of taxing entities will often get defensive and claim they have been keeping rates the same for years and, therefore, have not raised taxes. Yet, we know the real story! As property is reappraised and values increase (as they tend to do over time), the amount of property taxes we pay keeps going up and up and up and this reliance on property taxes to fund our governmental agencies has put tremendous pressure on our local community members to keep from being taxed out of their homes. The impact is real and relief is desperately needed.

We are well aware that cities and counties can leave rates unchanged and bring in additional revenue on increased values. What is often not fully understood is that school taxes do not function like city and county taxes.

The Texas School Funding System is a combination of local property taxes and state aid, and, there is an inverse relationship between these two sources of funds. In a somewhat overly simplistic explanation, once a series of complex formulas establish the amount of funding a district is to receive, local tax dollars go into the funding “bucket” first and the state tops it off with state aid, but, here is the catch….as property values rise and schools collect more local taxes, the state simply reduces their share of the funding. Left unchecked over time, the state’s portion gets replaced with local tax dollars and is skimmed out of education into other areas of the state budget. Therefore, schools and local taxpayers do not gain from increases in property value.

Districts subject to the state’s Robin Hood recapture scheme are seeing a significant and ever increasing amounts of their local tax dollars being taken by the state and are calling for relief.

If we want significant tax relief, a good place to start is with the gatekeepers of the system… our state leadership. There will be several ideas put on the table. Here are a few we will likely hear about and some of the challenges they will face.

The Governor’s 2.5% Plan – Give the Governor credit for being bold enough to step out early and put something on the table. From the school funding perspective, it appears it would limit new local tax revenue to 2.5%, compress a portion of the tax rate to that level, and force the state to come up with the difference. Over time, as long as values climb, districts may be able to compress rates, however, in our early analysis, the rate compression (when possible) will not be uniform - opening up the state to the same legal challenges they have lost in the past. And, with the tax rate compression, taxpayers will most likely not see reductions in property taxes. Even the Governor has acknowledged the plan will only slow the growth of taxes.

Uniform Compression – We received meaningful tax relief a few years back when the state compressed the maximum rate of $1.50 down to $1.00. Can this happen again? The Senate has set aside $2.3 billion for the biennium in property tax relief. Since each penny of reduction costs approximately $230 million, this would allow districts to basically reduce their Maintenance and Operations rate by 5 pennies for a two-year period. This appears to have a better shot at actually reducing taxes, however, depending on value increases, they could be short lived. This also shows how big of a commitment it takes to make a significant impact on school district property taxes.

Changing Exemptions – The most recent attempt at “meaningful” tax relief came by increasing homestead exemptions. It is a nice gesture that seeks to help keep homeowners from being taxed out of their homes, Critics will maintain that the last attempt fell far short being “meaningful” and equated it to saving enough for a cheeseburger or two a month. It also creates issues on the Interest and Sinking side of the tax bill. Having less value on the tax roll means that either rates have to go up to generate enough revenue to make the debt payment or the state has to cover the loss of revenue through some form of new state aid.

Appraisal Limitations – This gets brought up in certain circles….limit or hold the value growth down so our taxes wont increase at such alarming rates. There are currently limits on how much our taxes may increase due to appraisal. Taxpayers do not necessarily like it, but, having a uniform appraisal process and doing our best to appraise at market value (which is a point of argument for some) is critical for the property tax system to function properly.

We have heard the legislative priorities. School finance is a main focus of this session. So, where will the 86th Legislature take us? We are coming off of a year-long school finance commission that accomplished incredible work and will soon produce a multi-hundred-page bill addressing issues with educational expenditures, revenues, and outcomes.

Stay informed. I believe that we have been given a historic opportunity to make sweeping improvements to the Texas school funding system and the time is right for us to get it done.